Private Profiteers and Public Airwaves

Private Profiteers and Public Airwaves

Free Air

These remarks are excerpted from the October 18, 2004 issue of the New Yorker (U.S.).

by James Surowiecki

In the late nineties, Washington policymakers took up a noble cause. There was a new technology, digital television, that almost everyone agreed would eventually revolutionize TV, but — quelle horreur — almost no one was adopting it. Among other things, local TV stations couldnt transmit digital signals on their existing analog channels. They needed digital spectrum. (If you think of the electromagnetic spectrum as a highway, digital and analog signals travel in different lanes.) So Congress decided to give the stations a leg up — or, rather, a handout. Instead of auctioning off the digital spectrum (which might have brought in new competitors, not to mention money), or simply asking broadcasters to pay for it (it was worth, conservatively, tens of billions of dollars), Congress offered it to them free. It was, as Reed Hundt, who was the F.C.C. chairman, said at the time, the largest single grant of public property to … the private sector in this century. Senator John McCain was a little more blunt. He called it one of the great rip-offs in American history.

The Progress Report observes — the giveaway was calculated to be worth $110 billion, making it the biggest single act of corporate welfare in history.

To be fair, Washington did insist on some quid for its quo. In exchange for the new spectrum, the broadcasters would accelerate their move into digital programming, and they would return their old analog channels. This was the important part; technological innovation had made those channels extremely valuable, for high-speed wireless connections and public-safety radio transmissions, among other things. Of course, the government had given the broadcasters these channels in the first place, so it wasnt exactly driving a hard bargain. But it was getting something, at least.

Something is starting to look more and more like nothing. When the deal was made, in 1997, Washington anticipated that it would get all the old spectrum back by 2006. But now broadcasters have come up with a new plan: theyll keep the new spectrum and hold on to the old spectrum, too. And Congress appears to be going along with it. Last month, the Senate Commerce Committee killed a bill that would set a reasonable but firm deadline of 2009 for the return of the analog channels. In its place, the committee adopted a bill — backed by the broadcasters, naturally — that could enable them to hold on to most of their spectrum indefinitely.

The broadcasting industry is well acquainted with political favoritism and corporate welfare. Local TV stations have consistently been among the most lucrative businesses in the country, but they have never been asked to pay for their use of the public airwaves. In a sense, broadcasters are the modern equivalent of the railroads. In the nineteenth century, the railroads were given tens of millions of acres of land (adding up, eventually, to roughly ten per cent of the country); now broadcasters have been given billions of dollars worth of electromagnetic real estate.

The government subsidized the railroads because it believed that Americas economy needed a modern transportation system. It has subsidized TV stations because it wanted the media to serve the public interest. Broadcasters get their licenses free, and, in exchange, theyre supposed to keep the citizenry informed. Commendable as this mandate may seem, it has very little to do with the business of broadcast television. Today, most Americans — ninety per cent or so — have cable or satellite TV. The airwaves are used less and less. Nor is there any evidence that the public interest is better served by broadcasters than by cable channels. That the major networks showed just an hour of coverage per night of the national political conventions suggests that it is not. (And its unclear who is to blame, exactly, for the fact that two out of five Americans think wrongly that Saddam Hussein was behind the September 11th attacks.) If people would rather watch an episode of Survivor than a speech by Al Gore, the network will air Survivor. This is a sound business decision. But taxpayers shouldnt be footing the bill for it.

Getting the spectrum back raises some esoteric technical issues, such as the application of must-carry rules, but the lawyers can iron those out. And then there are those holdouts whose sets cant receive digital signals or who dont have cable or satellite TV; theyll be out of luck. But thats a small percentage of the population, and it will be even smaller by 2009. Still, for some reason we seem to believe that free commercial television is an inalienable right. We may not be willing to pay for all Americans to have health insurance, but were content to pay for them to watch Scrubs. One plan thats been floated would have the government put aside money to buy set-top devices that would allow any television, no matter how boxy and rabbit-eared, to receive digital broadcasts. Silly and impractical as that may seem, it would be worth trying if it would help get back the tens of billions of dollars worth of analog spectrum that the broadcasters are hoarding.

In fact, the fight over spectrum has little to do with what people watch and a lot to do with what economists call rent-seeking. Rents, in econo-speak, are the excess profits that monopolists reap in the absence of competition. By endowing local broadcasters with free channels, the government effectively made them little spectrum monopolists, and the one thing we know about monopolies is that they do not disappear of their own volition. The broadcasters, thanks in large part to their monopolies, have enormous lobbying resources, and their control of the airwaves has made local television — and, in particular, local television news — a powerful weapon to wield against politicians who cross them. Politics drives the business, and the business shapes the politics. As for the public interest — does Desperate Housewives count?

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Arts & Letters

Geonomics is …

a new field of study offered in place of economics, as astronomy replaced astrology and chemistry replaced alchemy. Conventional economics, in which GNP can do well while people suffer, is a bit too superstitious for my renaissance upbringing. If I’m to propitiate unseen forces, it won’t be inflation or “the market”; let it be theEgyptian cat goddess. At least then we’d have fewer rats. Meanwhile, believing in reason leads to a new policy, also christened geonomics. That’s the proposal to share (a kind of management, the “nomics” part) the worth of Mother Earth (the “geo” part). If our economies are to work right, people need to see prices that tell the truth. Now taxes and subsidies distort prices, tricking people into squandering the planet. Using land dues and rent dividends instead lets prices be precise, guiding people to get more from less and thereby shrink their workweek. More free time ought to make us happy enough to evolve beyond economics, except when nostalgic for superstition.

a way to connect the dots. Making the cyber rounds is “The Cavernous Divide” by Scott Klinger, from AlterNet (posted March 21): “As the number of billionaires in the world expands, so does the number of those in poverty.” Duh. The yawning income gap is not news. Nearly every issue of our quarterly digest carries a similar quote. Yet the connection was worked out long ago by one of America’s greatest thinkers, Henry George, who labeled his masterpiece, Progress and Poverty. Techno- and socio-advances always enrich few and impoverish many. Yet progress also pushes up location values – the geonomic insight (is Silicon Valley cheaper now or more expensive?). Instead of taxing income, sales, or buildings, society could collect those values of sites, resources, EM spectrum, and ecosystem services via fees and dues, which would lower the income ceiling, and instead of lavishing corporate welfare, pay out the recovered revenue via dividends, which would jack up the income floor. Dots connected.

what you do when you see economies as part of the ecosystem, following feedback loops and storing up energy. Surplus energy – fat or profit – enables us to produce and reproduce. To recycle society’s surplus, the commonwealth, geonomics would replace taxes with land dues (charged to users of sites and resources, in-cluding the EM spectrum, and extra to polluters), and replace subsidies with rent dividends to citizens (a la Alaska’s oil dividend). Without taxes and subsidies to distort them, prices become precise, reflect accurately our costs and values; then, motivated by no more than the bottom line, both producers and consumers make sustainable choices. While no place uses geonomics in its entirety, some places use parts of it, most notably a shift of the property tax off buildings, onto locations. Shifting the property tax drives efficient use of land, in-fills cities, improves the housing stock, makes homes affordable, engenders jobs and investment opportunities, lowers crime, raises civic participation, etc – overall it makes cities more livable. Geonomics – a way to share the bounty of nature and society – is something we can work for locally, globally, and in between.

the policy that the earth’s natural patterns suggests. Use the eco-system’s self-regulating feedback loops as a model. What then needs changing? Basically, the flow of money spent to own or use Earth (both sites and resources) must visit each of us. Our agent, government, exists to collect this natural rent via fees and to disburse the collected revenue via dividends. Doing this, we could forgo taxes on homes and earnings and subsidies of either the needy or the greedy. For more, see our web site, our pamphlet of the title above, or any of our other lit pieces; ask for our literature list.

an answer for Jonathan of the Green Party (Nov 7): “What does ‘share our surplus’ mean?”
Our surplus is the values that society generates synergistically. It’s the money we spend on the nature we use: on land sites, natural resources, EM spectrum, ecosystem services (assimilating pollutants). It’s also the money we pay to holders of government-granted privileges like corporate charters. We could share it by paying for the nature we use and privileges we hold to the public treasury then getting back a fair share of the recovered revenue. Used to be, owners did owe rent (“own” and “owe” used to be one word). And presently, some lucky residents do get back periodic dividends: Alaska’s oil dividend and Aspen Colorado’s housing assistance. Doing that, instead of subsidizing bads while taxing goods, is the essence of geonomics.
Jonathan: “Is local currency what you mean?”Editor: It’s not. Community currency is a good reform, but every good reform pushes up site values. That makes land an even more tempting object of speculation. Now, any good will eventually do bad by widening the income gap – until you share land values.

an economic policy based on the earth’s natural patterns. Eco-systems self-regulate by using feedback loops to keep balance. Can economies do likewise? Why don’t they now produce efficiently and distribute fairly? The answers lie in the money we spend on the earth we use. To attain people/planet harmony, that financial flow from sites and resources must visit each of us. Our agent, government, must collect this natural rent via fees and disburse the collected revenue via dividends. And, it must forgo taxes on homes and earnings, and quit subsidies of either the needy or the greedy. As our steward, government must also collect Ecology Security Deposits, require Restoration Insurance, and auction off the occasional Emissions Permit. And that’s about it – were nature our model.

an answer to a rarely asked question. If price is a reward for production, why do we pay for land, never produced by any of us? What is land price a reward for? Good behavior? How much money do we spend on the nature we use? Who gets it? What do they do with it? (If you answer all these correctly, you’re not a genius but a geoist.) The worth of Earth is enough that were we to collect and share it, we could abolish taxes on the goods we do produce. For example, San Francisco’s Redefining Progress has calculated that Cali-fornia could abolish all state and local taxes were it to collect the values of resources and of using na-ture as a dump. By exorcising the profit motive from depletion and pollution, rent collection could replace bossy regulation. Economies could self-regulate, as the rest of the eco-system does. See how big problems yield to big answers when we ask the right questions?

the study of the money we spend on the nature we use. When we pay that money to private owners, we reward both speculation and over-extraction. Robert Kiyosaki’s bestseller, Rich Dad’s Prophecy, says, “One of the reasons McDonald’s is such a rich company is not because it sells a lot of burgers but because it owns the land at some of the best intersections in the world. The main reason Kim and I invest in such properties is to own the land at the corner of the intersection. (p 200) My real estate advisor states that the rich either made their money in real estate or hold their money in real estate.” (p 141, via Greg Young) When government recovers the rents for natural advantages for everyone, it can save citizens millions. Ben Sevack, Montreal steel manufacturer, tells us (August 12) that Alberta, by leasing oil & gas fields, recovers enough revenue to be the only province in Canada to get by without a sales tax and to levy a flat provincial income tax. While running for re-election, provincial Premier Ralph Klein proposes to abolish their income tax and promises to eliminate medical insurance premiums and use resource revenue to pay for all medical expense for seniors. After all this planned tax-cutting and greater expense, they still expect a large budget surplus. Even places without oil and gas have high site values in their downtowns, and high values in their utility franchises. Recover the values of locations and privileges, displace the harmful taxes on sales, salaries, and structures, then use the revenue to fund basic government and pay residents a dividend, and you have geonomics in action.

a study of Earth’s economic worth, of the money we spend on the nature we use, trillions of dollars each year. We spend most to be with our own kind; land value follows population density. Besides nearness to downtowns, we also pay for proximity to good schools, lovely views, soil fertility, etc. These advantages, sellers did not create. So we pay the wrong people for land. Instead, we should pay our neighbors. They generate land’s value and deserve compensation for keeping off ours, as they’d pay us for keeping off theirs. It’s mutual compensation: we’d replace taxes with land dues – a bit like Hong Kong does – and replace subsidies with “rent” dividends to area residents – a bit like Alaska does with oil revenue. Both taxes and subsidies – however fair or not – are costly and distort the prices of the goods taxed and the services subsidized. By replacing them and letting prices become precise, we reveal the real costs of output, the real values of consumers. Then, just by following the bottom line, people can choose to conserve and prosper automatically. A community could start by shifting its property tax off buildings, onto land – a bit like a score of towns in Pennsylvania do; every place that has done it has benefited.

a new policy from a new perspective. Once your worldview shifts — so that vacant city lots are no longer invisible — then epiphany. “Of course! Why didn’t I see it before?” Once you do see the emptiness and what damage it does, how can you ever go back to the old paradigm?